Company A is 6 days away from going out of business. They will shut their doors. All employees will lose their jobs. All customers will lose access to whatever Company A does that they find helpful.
But then Company B agrees to buy them for $1 so that they continue running. Pays the employees, and continues running the service for customers.
> Company A is 6 days away from going out of business...But then Company B agrees to buy them for $1...Ban it?
versus scenario 2, Company A is profitable. Company B is smaller, but up and coming. An announcement is made that A will buy B and everything will be better. Layoffs ensue, product lines are dropped, employees and customers are very unhappy, but prices and profits are up.
Since scenario 2 is quite common today, and scenario 1 is relatively uncommon, yes, ban it, that's a better way to run markets.
We're conducting a thought experiment here. So we think through the implications and try to figure out if there is a way to achieve benefits for all, benefits that we know exist. Don't be scared of a single negative scenario, have to look at the big picture, what is better overall. I'm glad billionaires have the freedom to build kooky submarines that other multimillionaires can climb aboard and go on dangerous adventures, sometimes ending in the ultimate sacrifice. Why a whole bunch of other people who were uninvolved engage in weeks of hand-wringing, I can't grok at all.
I'm highly skeptical that heavily restricting buying and selling of companies in general will be a better way to run a market when it seems your goal is to prevent monopolies (or put another way, ensure competition).
Laser focused policies work for a short periods but tend to be worked around quickly as the thing they regulate falls out of favor in lieu of something functionally the same but different enough it doesn't match. Blanket policies tend to stifle the market in general, causing other problems. Rather than assuming that any specific law actually "solves" the problem, we'd probably be much better off setting criteria we're trying to match and and reassessing regulations regularly to try to meet that criteria. Anything unresponsive will be routed around.
The real problem is that we have things that do that (the SEC and FTC) and they're broken. We should fix them, not swap to a sledgehammer as the only tool available.
>I'm highly skeptical that heavily restricting buying and selling of companies in general will be a better way to run a market when it seems your goal is to prevent monopolies (or put another way, ensure competition)
ah, the markets I am talking about are goods and services markets. Financial markets, they take care of themselves, and at the same time garner no sympathy from the majority who don't participate in them.
if monopolies emerge some other way, sure, break 'em up just the same.
There are no "financial markets" and "goods and services markets" beyond arbitrary groupings people make to talk about sectors and types of commerce. It's all the same thing, and companies make use of various aspects of it as they see fit.
If a blanket ban runs into this problem, what about a "ban by default"? Basically just flip the script so it doesn't require a denial based on circumstances but instead an approval based on circumstances.
This doesn’t work in practice due to typically severe time constraints. You cannot expect a business that has 6 days of life left to wait for such an approval process. These things never happen fast.
What M&A are you familiar with that they can typically happen in a 6 day timeframe?
I know this is already a stressed straw man in the first place but M&A are aren't a short simple process anyway. Adding some oversight isn't going to change that.
Yes there are tradeoffs to more regulation vs total anarchy/free market. That doesn't mean they're not worth it. "Good" is not the enemy of "perfect" and all.
They don't necessarily need to complete the acquisition in a week, just get the broad details negotiated and agreed to. Given the GP's bankruptcy example, if they thought it was worth the risk the acquirer can extend a bare minimum amount of credit to keep the company alive while they do the rest of due diligence and finish the acquisition, folding it into a breakup fee.
> What M&A are you familiar with that they can typically happen in a 6 day timeframe?
Virtually every single bank failure that happens results in an M&A that is negotiated over a weekend.
Most recently Credit Suisse collapsed in March. UBS bought it on Monday, March 19, after negotiations began on Friday, March 16. UBS offered a price that was 60% lower than the Friday closing price. The deal was accepted.
Interestingly in this case an "approval" similar to the one we are talking about did happen over that weekend didn't it? I think the approvers brokered the deal.
Regulators were concerned about a collapse causing contagion that results in a financial crisis. Would they care to do that for a little startup with a few dozen employees?
> You cannot expect a business that has 6 days of life left to wait for such an approval process.
A homeless man that has 6 hours left to live in the cold winter often cant get shelter, because instead we are really concerned with caterting the entire fabric of society to fictiontion problems that might one day affect a mismanaged business.
Admittedly, I read the other comment as a whataboutism. This explanation seems to help.
I think one could argue that the business failure is likely to affect more people, therefore it’s a greater impact. Still, I ultimately agree with this stance (in the context of business survival, not personal); failure is an inherent risk of business.
Agreed. The number of people affected is a big difference. But I think the comparison does make clear that isn’t necessarily a principled reason not to accept a few failures as part of otherwise useful regulation.
A "few failures as part of otherwise useful regulation" sounds an awful lot like some innocent victims exists, treated as guilty.
Treating the (presumed) innocent as though guilty, by regulation even, doesn't sound all that good. In fact, seems there in fact are profound and relevant principles to not accept that.
The context in this discussion is comparing the hypothetical of a homeless person dying due to a systemic failure to the hypothetical of a business going bankrupt (without being acquired) due to a systemic failure.
This concept of presumed innocence ought to apply to this hypothetical homeless person: why not give them shelter (analogous to allowing M&A) by default, until someone decides it’s a problem? If a society is willing to accept this personal death, they should be willing to accept a business failure.
You've actually made a good argument for the M&A ban.
Consider: if it is as you're implying, that investors expect their returns to be realized mainly through acquisition, and if it's indeed common that startup acquisitions are done to kill a potential competitor, then... all the investors are doing is extorting large corporations. If you include IPO in the picture, they're also alternatively robbing the public.
If it's just rich getting richer by pulling money out of megacorps and large populations, then this is... literally the opposite of useful, valuable contribution to the society.
The way I see it, the above isn't 100% true, but it seems true in majority of cases, which makes me inclined to support the "M&A ban" idea.
A decade+ of acquisition as the default "exit" (and the idea that you have to be driving for an "exit" in the first place) made people straight up forget how companies normally work, apparently.
Seriously, why not just do something well and make a living from it? I've seen the word enshittifcation plenty lately, and it strikes me that the focus on exits and payouts is a big part of the problem.
I feel old and you goddamn kids better be off my lawn by the time I get back with the shotgun.
Well, for a long time, you would just get an MVP up and then collect as many users as possible by offering free accounts, and if you were somewhat aligned with something Facebook or Google was vaguely interested in, you'd get acquired for $100m. Getting $100m for two years of work is a lot more lucrative than working hard for a decade to build a self-sufficient company, so I can't really blame people for doing it.
Plus, in the case where you'd choose to build a real business, now you'd have to meet user expectations of everything being free because that's what they get everywhere else.
This is a factor you need to take into account, but in my experience, people overstate it. It's not actually that hard to get people to pay for things online.
The way you do it is the way it's always been done historically: offer a value proposition that justifies the money. And don't offer it for free at the beginning. People rightfully get very angry if you change the deal after they've come to rely on your product or service.
I don't know, my experience is that there is a group of people who don't mind paying for things online. I can generally group them in "people who own a mac, an iphone or an ipad"
I still am clueless as to how to generate a network effect without giving things away for free. And as you said, once it's free, it's expected to remain free
The cynical me says that some people are able to generate a network effect because of fame or because of an existing network to which they belong (i.e. being chosen at YC or published in a newspaper). For example, FB was promoted to death in all US campuses for free during the 2000s. I wonder how that happened (honest question)
We're just talking about a situation where some existing large interests have a lucrative business peddling some pretty addictive stuff, and they want to make sure nobody else encroaches on their turf. To that end, they're willing to spend a lot of money to "make the problem go away". Sometimes that means bringing the upstarts into the fold!
this sounds like it was dreamt up by a bunch of lawyers trying to get themselves more work. there's a lot more paperwork and bullshit involved in going into bankruptcy than just being bought out.
the point is not the thin edge case of bankruptcy vs merger, the point is that the fat part of the market would have been better off if Instagram was competing with Facebook, not part of Facebook, if video streaming services competed for eyeballs instead of being consolidated under Google who already controls eyeballs, etc.
little fish companies will be less likely to go out of business, and the economy will be more agile when they do if we stop allowing these big fat catfish to swallow everything in their pond.
> there's a lot more paperwork and bullshit involved in going into bankruptcy than just being bought out.
Not necessarily.
In fact, based on my experience I'd wager that in the bulk of the cases a bankruptcy would be far simpler from a paperwork perspective (but harder on the creditors).
I'm not advocating for banning M&As, but I think that could be addressed by only allowing acquisitions under specific bankruptcy conditions.
Again, though, I'm not advocating for that position. I'd hate to spend part of my life building a business and not be able to cash out when the time comes for me to retire.
Is it possible for private companies to pay dividends? Let's say you retire and you own a portion of a small but thriving company. Could that company potentially provide you with dividends as a form of income?
Yes, a private company can pay dividends. Or you could loan it the money to buy out your shares and collect interest as it pays back the loan. Or a mixture of the two, with a thousand little variations on terms. I believe I ran into an employee-owned company once that had gone through some version of the loan scenario.
Possible, yes, and frequently used I’m sure, but entangles the retirees financial future with the business’s future — the retiree loses if the new owners make bad decisions, overleverage, and end up defaulting / bankrupting themselves. I don’t think it’s reasonable to force all businesspeople to retain this risk after disposing of the business concern.
> Company A is 6 days away from going out of business. They will shut their doors. All employees will lose their jobs. All customers will lose access to whatever Company A does that they find helpful.
If Company A was providing a service that people found helpful, someone else who is more competent at running a business will step in to fill that need. Employees will flock to the new better run business or move to some other better run business.
When new companies have to step up to provide popular goods and services that were previously being provided by failing, poorly run companies, it results in innovations and new ways of doing things instead of just letting bloated industry giants continue to be propped up artificially by restricting consumer choice.
Having more players in a market also increases resiliency and improves stability. If one company runs into problems, the others in that space can pick up the slack. No more "Too Big to Fail".
Its capitalism. Companies must die rather than become merged zombies(Soviet Style). Since this is hypothetical. Maybe the employees shall then start their own startup and get success or maybe the company was shitty anyway in the first place.
But then Company B agrees to buy them for $1 so that they continue running. Pays the employees, and continues running the service for customers.
Ban it?